24 Unit multi-family, huge disparity between Section 8 and going rent..

11 Replies

I'm looking at a 24 Unit being sold by the local Urban Development. The listing states that the rent is 275/unit.... All units are one bedroom which according to HUD Fair Market Rent is 528.00. I haven't talked to anyone that deals with the property yet, just internet searching information, but I am totally confused by this. Gross is listed as 79,200/ net 59,200 (listings numbers, not mine for sure, but still....) Even if landlord paid all utilities the gross should be 152,064 at Section 8.

Asking price 299k/ last sold 2013 for 170k 

Any thoughts on what may be going on here?  I can't figure out how to accurately do an analysis due to the fact the numbers aren't making sense to me.

Don't destroy me too badly for posting the question without contacting the sellers yet to solve some of the question. I'm actually too confused to attempt talking to anyone who may potentially be involved in this deal to open my mouth.  

go talk to the tenants,

be a fraudster and pretend you want to live there.

@Account Closed  I forgot to mention it's out of state for me.  It's an area I used to live and plan on moving back to in the future.  

On a side note, in 2008 when I was a police officer in this city I responded to a homicide in the parking lot (drug deal gone bad.)  

Without knowing the area, tough to make too much of an informed guess. I'll say my gut would lead me to guess one of two things:

-Its a very depressed area and this is a tax credit complex (or similar subsidy) where the rents are fixed at a % of Area Median Income (AMI) rather than open market rents

-Its such a crappy area that you're only able to attract the lowest of the low income folks: not anyone with a voucher, but the folks on straight SSI (no SSDI) for a reasonable proportion of their income. 

A thought: remember FMRs are set at 40 or 50th percentile of rents for the area calculated. That means there are units well lower than the FMR in the area. That seems to be your complex. Also remember, as I'm sure you do, that sometimes those basement rents are deserved.

With marginal properties in marginal areas the owners seem to run right to section 8. OTOH if you know the area they can be turned around.

I'm watching one like a hawk right now that's all section 8 in a very nice A area because the owner is to cheap to spend anything on the building and is letting it decay. I can't wait for that one to come on I'm going to try to buy it, evict everyone living their, and rebuild it. The average rent will go from about $800 a month from section 8 to about $2k a month! 

If you know the area where this property is located you might be able to do something similar.

@Bradley Bogdan  Interesting information.  That's exactly why I asked this question, I didn't realize that there were "tax subsidy" rentals.  It never occurred to me that there are people that do not qualify for Section 8 and live only on SSI.

@Chris Field I would love to do that here.  I think there is potential!  Good luck!

in todays climate be careful.  have a guy from the 'hood be a front man as to ownership,  so theyll bypaas your property when its time to riot...................

Originally posted by @Zachary Lowe :

I'm looking at a 24 Unit being sold by the local Urban Development. The listing states that the rent is 275/unit.... All units are one bedroom which according to HUD Fair Market Rent is 528.00. I haven't talked to anyone that deals with the property yet, just internet searching information, but I am totally confused by this.

HUD establishes a cap in every locality. Local housing authorities generally will not allow rents over this cap. My experience is that these caps are very high and it is routine that actual rents are much lower than the caps.

Originally posted by @Zachary Lowe :

@Bradley Bogdan  Interesting information.  That's exactly why I asked this question, I didn't realize that there were "tax subsidy" rentals.  It never occurred to me that there are people that do not qualify for Section 8 and live only on SSI.

@Chris Field I would love to do that here.  I think there is potential!  Good luck!

 Pretty much no area has enough Section 8 vouchers to adequately serve the low income population. Almost all folks living on SSI qualify, but many can't get a voucher, or in some areas even sign up due to the waitlists being so long that they closed them. 

@Account Closed  There comes a point thought were capitalism can't support such a low rent rate though. How can a building make a profit when people are living practically free and there is no subsidy?

It is a common sight to see a landlord and has partially given up and is not fixing anything and the place looks like crap.  The lazy fix is to lower rents and keep it as full as possible until you sell it.

@Zachary Lowe

 It depends what use agreements/tax credits/other tax stuff is in place. The seller would be obligated to let you know what agreements and such are currently in place, and whether they would transfer in a sale. As there are a ton of different wrinkles and programs, both local and federal, its tough to be a bit more focused on what could be in play. 

IF the complex is under a subsidy/tax credit that fixes rents as a % of Area Median Income, rents would be tied to the annual income data provided by the gov't, though an owner can always opt out of further assistance and charge market rents if they so choose. Again though, try to get more information out of the seller.